Saturday, April 18, 2015

Citi posts solid first quarter earnings, surprises 9%



Citigroup reported first quarter earnings on April 16th, 2015. Earnings per share came in at $1.52 per, above consensus estimates of $1.39 per share. Revenue for the quarter was $19.8 billion, down 2% year over year and missing street estimates of $20 billion.


Lower revenues in Citi’s Corporate/Other, Institutional Clients Group, and Global Consumer Banking were offset by lower operating expenses. Operating expenses for the quarter were $10.9 billion, down nearly 10% year over year. The decline in expenses was driven mainly by cost reduction efforts, reduced legal and related costs and repositioning charges. However, the firm experienced higher regulatory and compliance costs.


The trend of improving credit quality continued into first quarter. Total allowance for loan losses was $14.6 billion (2.38% of total loans) down 2.87% year over year. Loans and deposits decreased 6% and 7% year over year to 621 billion and 899 billion respectively.

Overall, a positive first quarter performance for Citi. Although missing revenue, EPS beat by a significant amount. Continued expense management will continue to benefit Citi in the tough interest rate environment. Citi traded up around 2.5% after earnings were released but those gains were completely offset after poor market performance on Friday. The stock closed the week at $53.07.

PNC Financial Services beats 1Q2015 earnings but misses on revenue

PNC Financial Services reported first quarter earnings on April 15th, 2015. EPS for the quarter came in at $1.75, beating estimates of $1.71 per share, for an earnings surprise of 2.3%. First quarter revenue was $3.73 billion against estimates of $3.75 billion and down 1% year over year. Revenue in the first quarter was mainly driven by strong performance in the Retail Banking segment, exhibiting very strong evidence of our investment thesis.

The results were mainly driven by a fall in the provision in credit losses and increases in noninterest income, however partially offset by higher expenses and lower net interest income. Noninterest income and expenses came in at $1.66 billion (+5% YoY) and $2.35 billion (+4% YoY), respectively. Higher expenses were due mainly to investments in bank infrastructure and technology for its banking transformation initiative. Also, the company is about 30% complete with its goal of reducing costs for 2015 by $400 million. Net interest income for the quarter fell to $2.07 billion, down 6% from the previous year. PNC’s net interest margin fell 44 bps to 2.82% year over year.
PNC’s ability to source cheap funds and expand its balance sheet during the quarter should pay off when interest rates begin to rise. Loans grew 3% and deposits grew 6% compared to the previous quarter, despite the tough interest rate environment. Credit quality improved significantly YoY: Provision for credit losses were down 43% to $54 million, while net charge offs fell by about the same percentage to $103 million.

Overall, a decent performance for PNC despite missing on revenue. The performance supports our investment thesis of higher noninterest income and lower expenses, with modest loan growth. This combined with stronger credit qualities and a strong focus on customer satisfaction should pay off for PNC in the long run. PNC has traded down around 2.5% to $90.93 since earnings were reported.

Thursday, April 16, 2015

Bank of America Q1 Earnings

Bank of America reported earnings on 4/15/15 and reported $0.27 EPS and 21.4 billion in revenue. The consensus on Bank of America for this quarter was $0.29 EPS and 21.5 billion in revenue. In addition last year Q1 revenues were 22.8 billion. As a result, Bank of America dropped 1.14% today to $15.64. In Q1 Bank of America has been the worst performing large bank stock in the sector. Bank of America missed EPS because of a 6 billion dollar litigation expense. This was a onetime expense and going forward Bank of America will not have this liability. Net interest income was $484 million and net charge offs were 1.2 billion. Bank of America has decreased their loan book slightly this quarter as they sold their nonperforming loans. Bank of America also increased their assets slightly to 2.14 trillion, this is because of the deposit growth. Bank of America also has a lot of cash on hand as well that is ready to be loaned out or used in stock buybacks or dividends, which Bank of America is planning on a $4 billion stock buyback and dividends of $0.05 per share.  Overall, this is another quarter of weak earnings from Bank of America, they appear to be setting themselves up for a higher interest rate environment, by cutting expenses now and managing their lone book. The highlight of Q1 earnings is that expenses are down 6% as BAC reduces employees and is looking to cut more expenses in the legacy asset services division. 

Thursday, March 19, 2015

FedEx Corporation Q3 2015 Earnings

            On March 18th, FedEx Corporation (FDX) reported their 3rd Quarter earnings. They reported an EPS of $2.01 up from $1.23 last year. This managed to beat consensus estimates of $1.87. Furthermore they missed analysts' expectations for revenue by $90 million as they reported revenues of $11.7 billion up 4% from 11.3 billion last year.  Operating income increased 50% to $962 million from $641 million last year and as a result operating margin increased to 8% from 6% last year. Finally net income increased 53% to $580 million from $378 million last year. Overall, FedEx benefited from increased volume during the past peak season, decrease in fuel costs, and their profit improvement program.
            The FedEx Express segment posted revenues of $6.66 billion compared to $6.67 billion last year. US domestic package volume grew 4% however revenue per package decreased 2%. Furthermore, international export revenue per package decreased 4%. These mixed results were as a result of lower fuel surcharges and unfavorable currency rates that offset possible revenue growth. The FedEx Ground segment posted revenues of $3.39 billion up 12% from $3.03 billion last year. Also, they had an operating income of $558 million up 14% from $490 million last year. Average daily volume for this segment grew 7%, revenue per package increased 3%, and SmartPost revenue per package increased 8%. This was mainly caused by increased rates and postage costs. The FedEx Freight segment posted revenues of $1.43 billion up 6% from $1.35 billion last year. Operating income increased 94% which led to an operating margin of 4.8% up from 2.6% last year. This was as a result of an increase of 3% in Less-than-Truckload (LTL) average daily shipments and 3% growth in LTL revenue per shipment
            Finally, FedEx projected a diluted EPS of $8.80 - $8.95 for 2015 assuming continuous moderate global economic growth. These results failed to meet analysts' expectations of $8.97 diluted EPS. Also, they maintained that capital expenditure will be $4.2 billion for 2015. As a result of their earnings report, FedEx stock price fell 1.41% to $173.30 by the time the market closed on Wednesday. Overall, although outlook for 2015 did not meet expectations, our investment thesis remains strong. FedEx Corporation is still a great company to hold on to and will continue to cut costs and expand in the future. 

Thursday, March 12, 2015

Stress Test 2015 Results; Capital Levels Strongest Since 2008 but Big Banks Still Struggle

The 2015 Federal Reserve’s Comprehensive Capital Analysis and Review had largely positive effects on the Street. For this first time ever, all 31 banks tested were found to have adequate capital and would be able to continue lending in a severe economic downturn. While banks have continued to strengthen their capital positions, four of the six largest U.S. struggled to pass the tests.

Citigroup, which had failed the test two times in the last three years, earned approval for its capital plan- a major goal of CEO Michael Corbat. Citigroup was given the green light to raise its quarterly dividend (which has been around one cent since 2008) to $0.05. The bank was also given approval for the buy back of up to $7.8 billion of its own shares, up from $1.2 billion in the previous year. Citigroup traded up 3.34% on the day, closing at around $54.08

Bank of America (BAC) has problems with their internal controls. The bank needs to resubmit its capital plan before winning approval for boosted shareholder returns. Bank of America has until September to submit a new capital plan.  The weakness in their capital plan comes from their loss and revenue modeling practices in their internal controls. Investors expected a complete rejection of Bank of America, however regulators only rejected some of their plan. Bank of America is planning on a $4 billion dollar stock buyback. As of midday Thursday (3/12/15), BAC is trading lower at -1.12%. (Paragraph Contributed by Mike Lorka)

Deutsche Bank and Santander Bank were the only 2 banks to pass the first round capital tests but fail the Fed’s qualitative analysis. The main reason these banks failed was for their inability to model losses and identify risks.


Overall, the 2015 CCAR had positive effects on the financial sector. Heading further into 2015, I believe this is just another positive event that reiterates my view of strong expected performance for the financial sector. We will continue to monitor BAC closely as the process of resubmitting its capital plan unravels. 

Thursday, March 5, 2015

US Ecology 2014 Q4 Earnings Release

On Friday February 27th, US Ecology reported their Q4 and fiscal year earnings. During Q4, US Ecology reported strong earnings as they delivered a quarterly revenue of $157.2 million up 164% from last year and operating income of $19.1 million up 24% from last year. This boost in revenue was primarily caused by the progress made in the integration process of The Environmental Quality Company (EQ) which US Ecology acquired last June. So far they are on schedule and predict that they have 14 months left in the integration process since it is scheduled to take two years. Overall, for their fiscal year earnings, US Ecology posted a revenue of $447.4 million, up 122% from last year and a net income of $38.2 million, up 37% from last year. Although yearly EPS missed consensus by $0.02, there is positive outlook going into 2015 for US Ecology.
Major changes are occurring within US Ecology that are poised to ignite growth in the future. Recently, US Ecology has restructured its operational segments. Now, US Ecology operates in two segments: Environmental Services (ES) Segment and Field and Industrial Services (FIS) Segment. The ES segment consists of all the US Ecology operations and Legacy EQ treatment and disposal facilities and currently accounts for 70% of US Ecology’s revenue. It primarily provides hazardous and non-hazardous materials management services including waste disposal, treatment, recycling, and transportation at company-owned treatment and disposal facilities. The Field and Industrial Services  segment consist of all Legacy EQ field and industrial services business and currently accounts for 30% of US Ecology’s revenue. Services include waste packaging, collection and total waste management solutions. Together these segments form the new US Ecology.
Management seems to be quite optimistic going into 2015. They project the revenue is going to reach $585 - $620 million next year up % from 2014. Furthermore, they expect their ES segment to account for 60% of that ($345 - $370 million) and their FIS segment may account for 40% ($240 - $250 million). Also, management believes that EPS will be around $1.76 - $1.92 in 2015. A major change will occur in US Ecology’s interest expense as their interest hedge program has begun on December 31st, 2014. This program is designed to make 63% of their debt be paid off at 5.2% interest. In addition, US Ecology expects tax rates to increase to around 39% up from 37.4% in 2014 because of increased profits in the US and higher state income taxes. Finally, capital expenditure is set to increase to $40 - $45 million in 2015 as US Ecology did not spend as much as they expected in 2014. In 2015, US Ecology plans on using this capital on land-fill development, infrastructure upgrades and equipment replacement of their operational facilities.

                Overall, US Ecology posted better than expected results during 2014. The key initiative they have for next year is to continue the integration of EQ into the company. Already 8 months into the 2 year process and the company has been right on schedule. Going into 2015, US Ecology will definitely have solid growth as it continues to provide effective waste management services. 

Tuesday, February 17, 2015

Wolverine World Wide Q4 2014 Earnings Release

This morning, Wolverine World Wide (WWW) reported its fourth quarter earnings and fiscal year ended January 3rd, 2015. The company’s fourth quarter net income rose as sales revenue spiked in regions overseas (excluding North America). Wolverine World Wide’s adjusted diluted EPS increased 36.4% leaving it in line with analyst’s estimates at 30 cents per share. Full year earnings per share climbed 13.3% to $1.62, compared to the prior year’s EPS of $1.43. Revenue was a company record-breaking number at $808.9 million, but just about met consensus estimates listed at $808.11 million. The rise in revenue represented a 9.2% increase y/y leaving the company with its fifth consecutive year of record-breaking revenue. During the quarter, 9 of Wolverine World Wide’s 16 brands generated double-digit revenue growth, as well as their too largest brands, Merrell and Sperry, delivering mid single-digit and high single-digit revenue growth. The company also reported a record $189.4 million in operating free cash flow, enabling Wolverine World Wide to reduce interest-bearing debt by $195.7 million.

Last month the company announced plans to significantly increase brand-building investments in fiscal 2015, in order to capitalize on growth opportunities around the globe. These brand-building investments focus on consumer-demand creation, omnichannel initiatives and international expansion. Wolverine World Wide plans to incrementally invest approximately $30 million into these brand-building initiatives for FY 2015. As for 2015 earnings, the company now expects reported revenue between $2.82 and $2.87 billion representing a 2%-4% growth y/y. They expect adjusted operating margin to decline 80 basis points, driven primarily by the incremental brand-building investments listed above. A lower interest expense of $40 million, but a modestly higher effective tax rate of approximately 27.5% is also expected. Adjusted diluted EPS is expected to drop into the range of $1.53 to $1.60. This reduction in EPS is reflected by the incremental brand-building investments, higher pension expense, and the negative impact on foreign exchange.

Wolverine World Wide reported solid earnings, the only downside being the reduction in 2015 projections that can be explained through the investments towards future expansion. The company appears to be making smart moves for sustained long-term growth and in my opinion, should be a company to hold on to. Today at market close Wolverine World Wide  (WWW) had a drop in price leaving it at $28.25 (-2.25%).